Can I keep my car if I file bankruptcy?

If you own the car outright

Your car’s value is protected up to the motor vehicle exemption available to you. If the car is worth less than the exemption, it is fully protected and nothing happens to it.

If the car is worth more than the exemption, a Chapter 7 trustee could in theory sell it, pay you the exemption amount, and use the rest for creditors. In practice, trustees rarely bother unless the non-exempt value is significant, because selling a used car costs money and the return is small. Many people also have a wildcard exemption they can stack on top of the vehicle exemption.

Value means what the car would actually sell for now, not what you paid for it.

If you are still paying on the car

The lender has a lien, and bankruptcy does not erase liens. What it does is give you choices.

In Chapter 7, you generally pick one of three:

• Keep paying. You continue the loan as if nothing changed. Many lenders will ask you to sign a reaffirmation agreement, which makes you personally liable on the loan again after the bankruptcy. Reaffirming has real downsides if you later can’t pay, so it deserves careful thought; the reaffirm-redeem-or-keep-paying answer in the Chapter 7 section compares all three doors in detail. In some districts and with some lenders, you can keep paying without reaffirming.
• Redeem. You pay the lender the car’s current value in one lump sum and own it free and clear, even if the loan balance is much higher. This is powerful if you are far underwater and can find the money, sometimes through a redemption loan.
• Surrender. You give the car back and the remaining balance is discharged. You owe nothing, including any deficiency.

In Chapter 13, the car loan gets paid through your plan. Two features can make this very favorable. If you bought the car more than about two and a half years before filing, the plan can reduce what you pay to the car’s current value, with the rest treated as unsecured debt. And the plan can often set a lower interest rate than the original loan. If you bought the car recently, you pay the full balance, but you can still spread it over the plan and stop a pending repossession. The Chapter 13 section’s car answer runs the full playbook, cramdown numbers included.

If you lease the car

A lease is a contract, not a loan. In bankruptcy you either assume it (keep the car, keep paying, stay bound by the terms) or reject it (turn the car in and discharge whatever you owe). There is no middle option.

If the car has already been repossessed

Filing before the lender sells the car can, in many cases, get it back, especially in Chapter 13 where the arrears can go into the plan. Timing is tight and measured in days, so if this is your situation, go straight to the repossession answer in the Urgent problems section and treat today as the deadline.

Things that change the answer

• The exemption amount available to you and whether a wildcard applies.
• The car’s actual current value versus the loan balance.
• How long ago you bought it.
• Whether you can realistically afford the payment going forward.